economics essay

Downfall of Communism

Published: 23, March 2015

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Economic and nationalistic forces caused the downfall of communism in Russia and Germany. The rise and fall of communism is a very interesting story. Communism is an economic and political system based on the idea that private property and differences in classes should not exist and that the state should own most of the economic resources. Everyone would work for the good of the country and wealth would be equally shared among all the citizens. The most important fact to understand about the economics of communism is that communist revolutions triumphed only in heavily agricultural societies.[1]

The rise and fall of Soviet Russia is a perhaps the greatest example of the economics of communism. Communists that were allied with the Bolsheviks party in 1917 led a revolution that overthrew the Russian Government. After four years of civil war in 1922, the revolutionary state became the USSR. The initials USSR stand for the Union of Soviet Socialist Republics, which was the country's official name. The years following the war, the Soviet Union tried to spread communism to other nations. Soviet troops obtained a lot of Eastern Europe during World War 2, including East Germany and Romania. When the war was over, the Soviets set up a Communist government in these regions.[2]

The Soviet Union's actions worried the United States and Western Europe. The West wanted to spread democracy and capitalism. These political and economical systems were in conflict with communism. The difference between communism and capitalism in the West on the economical stand is that in communism the state owns most property and in capitalism the property is privately owned. Another difference is that with communism the state plans economical development and in capitalism the consumer demand drives the economy itself. The west and east also had big political differences. In communism, not actually how communism is supposed to work, just how it always ends up working, one political party limits electoral choices and the state places many restrictions on religion and personal freedoms, while in the west multiple political parties participate in free elections and personal freedoms such as freedom of religion, are protected.[3]

All this tension between the US and the USSR caused a lot of mistrust between the two powers and eventually started the Cold War. For four decades the government of the United States waged the Cold War against the Soviet Union. Doing so brought about massive changes in the allocation of resources, with effects on many dimensions of the nation's economic performance.[4] The United States and Soviet Union tried to spread their own economical and political systems around the world for more than 40 years. The thing is, when they did this they both used diplomacy, financial aid, and armed conflict which cost money and hurt the economy. What most Americans did not realize was that the Soviet economy was not as wealthy as the United States and therefore was less able to support the big military budgets than the U.S. could afford. During this time the U.S and USSR built mass amounts of nuclear and conventional weapons. This was the blurred point of view from the Americans. The causes of the Soviets economic weakness were many. People were not working hard because Communists taught that people should not accumulate wealth so there was no motivation or reason to work hard. The goals set for the Soviet system by the government officials were not working because the officials who were making the decisions knew very little about day to day operations of the economy which led to the citizens having a shortage of food and consumer goods. People were afraid to say anything about the economy or to suggest a change for fear of the consequences.[5]

In the 1980s, the older generation of Soviet leaders was beginning to die out. A man by the name of Mikhail Gorbachev became the leader or the Communist party in 1985. He was more willing to explore different ideas to help save his country from economic ruin. Because the Soviet Union was falling apart he came up with some new policies, chiefly Glasnost and Perestroika. The first policy, Glasnost, encouraged the Soviet citizens to openly share information and ideas and to criticize the government which was previously illegal.[6] The Perestroika policy restructured the economy in a way that meant individuals could own their own businesses and the people would be able to have their own decisions. Gorbachev decided he was going to try and gradually open the political systems in a policy called democratization, which would end exclusive control by the Communist Party. A policy called "new thinking" was to reduce Soviet interfaces in the East and was to try and put an end to the arms race with the West in an attempt to focus money back on renewing the economy.

The Soviet economy was in the hole so deep that Gorbachev learned the hard way that there was no fast and easy answer to their problems. One main problem he had was the Communist party was getting angry with him saying that he was being too Western. The citizens, expecting quick results, were getting angry also because the economy was not getting any better like he had promised. The old government had left problems for Gorbachev when they had suppressed creativity and innovative thinking. This was what the Soviets needed if they were going to prevent their government from collapsing. Gorbachev had many other problems other than the economy. He was allowing Eastern Europe more independence, and minority groups took advantage of that and started to rebel in order to regain their freedom. The Soviet Union contained more than 100 ethnic groups and was one of the most diverse nations which led to groups rebelling and wanting to become completely independent from the Soviet Union. Gorbachev had failed so badly that he resigned as head of the Communist party and parliament voted to end the activities. This in turn led to the breakup of the Soviet Union all together.[7] In 1991 on Christmas day, Gorbachev officially resigned as president of the Soviet Union and the nation no longer existed.

The reforms of Gorbachev had a huge impact on Eastern Europe. Countries such as Poland, freed from the threat of the Soviets, threw off communist rule and held their own democratic elections. The economy in East Germany had similar problems as the Soviet Union. The industries were too old fashioned and the equipment was unable to produce up to date consumer goods, such as things like computers. East Germany had to trade with the west which caused a large amount of foreign debt when they could not export the amount of things that they were importing.[8]

The fall of communism in Russia and Germany had the same pattern. The reasons were economic problems. Both countries had a state controlled economy that was held under the communist rule and this could not keep up with the capitalistic economy in the West. The nations simply could not produce the quantity or quality of goods it needed for the citizens to be happy and the economy to thrive. This in turn led to the people getting very angry and a greater interest in capitalism began to emerge.[9]

The economies of Russia and East Germany were so damaged during the communist rule that problems were still around long after the Communist Party ended. With the advice of economic experts, Boris Yeltsin proposed a plan called shock therapy. On their advice Yeltsin dismantled the economy all at once by eliminating price controls, trade barriers, and government funding of industries. He also introduced the private ownership of property and free market. This was an extremely bad idea and did not go well for Russia, inflation went through the roof and most factories cut production or closed completely. Millions of Russians lost all of their savings and their jobs. Many of the brightest people fled the country to avoid this disaster. This crisis went on for almost a decade until the economy began to improve. Foreign investors helped the Russian economy by having more confidence in the businesses. The rising prices of oil and metal exports also helped greatly in the early 2000's. The problem for Russia according to economists is that they are too dependent on oil exports and if there is a significant drop in oil prices then there could be a serious setback. [10]

Germany is also doing well. With the unification of East and West Germany significant progress has been made in its economy. It was difficult merging the two parts of Germany mainly because East Germany had many run down factories that needed to be closed causing many people to be unemployed. West Germany had a very strong economy which helped taxes still needed to be raised to pay for the economic improvements and unemployment. As expected this angered the people of Germany but they also do not want to go back to a separate state. Since reunification, significant progress has been made and Germany and Russia have been improving. [11] However, Russia still has a long way to go and must make significant changes in its economy in order to improve the quality of life for its people. Right now most of the Russian economy is based around primary resource exportation of oil, gas, coal and timber. To boost its economy, Russia needs to diversify by looking to secondary resource of manufacturing such as machinery and equipment and consumer goods as a way of regenerating its economic base.[12] These changes will improve the Russian economy but it will take time and improvements will be gradual.

While at first communism seemed like a new and promising economical concept, the combination of political pressure from the west, mismanagement by the communist governments and inherent economical problems all led to dissolution of the USSR and the fading of Communism in the east.

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